According to the IMF, global debt has reached a staggering $152 trillion and rising. The world economy is currently in the biggest credit bubble in history, which will eventually burst once resources hit a point of market saturation.
Most financial markets are intricately tied to the political whims of central banks, yet hard assets like gold, silver and land can act as a hedge against a pending crash. While these options can act as a store of value, they are not as liquid as cash, nor can they facilitate global trade.
Negative interest rates disincentivizes people from saving fiat currencies, which could lead people towards using alternative forms of cash like Bitcoin. According to Bill Gross, a billionaire bond manager, Bitcoin has the potential to counter central banks.
Many people within the legacy system are critical of negative interest rates and quantitative easing, yet the fundamental problems are rooted at a much deeper level. The entire economic credit structure operates like a convoluted Ponzi scheme, and requires an overhaul from the ground up.
The Fractional Reserve Ponzi Scheme
The history of banking goes all the way back to goldsmiths who issued out receipts for physical gold stored in their vaults. The gold was kept secure and the receipts were traded as the first paper notes.
Rather than being satisfied with collecting fees for storing gold, these early bankers decided to start lending out gold and charging interest. Once the habit of trading paper receipts became the norm, these crafty bankers decided to lend out more promissory notes than physical gold held in reserves.
This scheme worked perfectly until people caught on and tried to withdraw their gold deposits at the same time. This is called a run on the banks, which renders the entire scheme insolvent.
Compare this simple model to that of an illegal Ponzi scheme. Ponzi schemes pay old investors dividends from money coming in from new investors. The very nature of a Ponzi scheme is to create debt obligations that can only be paid with new money coming in. The reason why Ponzi schemes fail is because they are based on a false presumption that there are an infinite amount of new investors who can be recruited. Once the scheme hits market saturation (based on a finite population), the entire thing implodes.
Fractional reserve banking operates in a similar capacity by creating new credit (money) to pay the interest on old debt. If a banker lends out 10,000 pounds of gold yet only has 1,000 pounds stored in a vault, how are borrowers suppose to pay off the interest? The goldsmith will end up accumulating more gold as interest payments but the scheme is based on a false assumption that gold is infinite. It’s not mathematically possible for everyone to pay back the loans, so just like a collapsing Ponzi, the majority of participants at the base level will end up bankrupt.
After several major bank runs and economic depressions, governments decided to create semi-private central banks to regulate the money supply. These central banks were created to prevent bank runs by becoming “lenders of last resort”.
Rather than stopping this fraudulent scheme, governments and banks decided to remove the gold out of the equation entirely. This gave them the freedom to expand the credit supply without needing to worry about reaching saturation on the gold market.
Since many governments were already indebted to private banking cartels, this scheme was legalised and spread to most jurisdictions in the world. Fractional reserve banking allows private banks to expand the credit (money) supply, by issuing out more loans than cash deposits.
The only problem is that it’s based on a delusional model of perpetual economic growth, which requires an infinite amount of natural resources to keep the scheme alive.
Increased Consumption, Waste and War
The expansion of global credit has helped stimulate economic growth, which increased technological innovation and raised the standard of living for first world countries. Money has streamlined commerce to the point where the average person in our western civilization doesn’t have to toil all day to farm for food.
The dark side of fractional reserve banking is that resources are limited and therefor humans must compete more aggressively to keep their slice of the pie. Perpetual economic expansion means that corporations must always sell more products, deplete more resources and encourage waste. It’s no longer economically feasible to create products that last a lifetime. Instead we’ve built a wasteful consumer society that revolves around planned obsolescence.
When the resources run dry in certain jurisdictions, governments need to intervene on behalf of their corporate allies and wage war to take the resources of others. Confessions of an Economic Hitman is a first hand account of warfare being waged through bad loans, assassinations and military intervention.
Ponzi Scheme Collapse
Like all Ponzi schemes we’re hitting a point of market saturation, where our entire system may be on the verge of collapse. Our economic debt bubble is actually worse than a traditional Ponzi scheme, because it leaves a trail of environmental destruction that can drive us to the point of extinction.
Governments and central banks are desperately trying to keep the credit scheme alive through a variety of tactics such as bail-outs, bail-ins, negative interest rates, quantitative easing, capital controls and a war on physical cash.
Bail-outs: When banks and major corporations start to fail, governments create more debt/money to rescue them. The burden is then passed on to the taxpayer.
Bail-ins: When financial institutions fail, bond holders and uninsured deposits take a haircut to keep the company solvent.
Negative Interest Rates: Central banks charging commercial banks a fee for keeping cash reserves. This cost can be passed down to the consumer, penalising people for saving money.
Negative interest rates are suppose to encourage spending and loans to stimulate economic growth.
Quantitative Easing: Central banks Increasing the debt/money supply to flood the financial markets with liquidity. This newly injected capital is generally used to purchase securities off the markets to stimulate economic growth.
Capital Controls: Governments and central banks restricting the flow of foreign capital in and out of a particular jurisdiction. Countries that devalue their currency often force their citizens to baghold the depreciating money, by restricting capital flight.
War on Cash: Restricting the use of physical cash as a means of maintaining economic control over individuals. Cash provides the benefit of anonymity as well as hedging against bail-ins and negative interest rates.
There is more digital credit than cash on hand, so banks discourage large cash withdrawals. People who withdraw large sums of cash are often treated like criminals and reported to the “authorities”. Civil forfeiture allows police to confiscate cash without explanation or criminal charges.
Run a fractional reserve Ponzi scheme for several centuries and the end result is a $152 trillion debt bubble, and a global empire rooted in systematic debt slavery.
Black’s Law dictionary defines slavery as:
“1. A situation in which one person has absolute power over the life, fortune, and liberty of another. 2. The practice of keeping individuals in such a state of bondage or servitude.”
Modern day slavery can take on many forms, such as the overt slavery that exists in third world sweat shops, or the subtle “free range” financial slavery of the privileged classes.
In 2015, the average American household debt reached $130,000. On top of that, inflation slowly erodes our savings by about 2-3% per year. Factor in the interest accrued on all debt and the average citizen spends their life perpetually running on a hamster wheel of wage slavery.
Black’s Law Dictionary defines employment as:
“1. The relationship between master and servant.”
It defines master and servant as:
“The relation between two persons, one of whom (the master) has authority over the other (the servant), with the power to direct the time, manner, and place of services.”
It’s also interesting to note that the words “bond” and “bondage” have the same roots. A bond is a debt instrument that represents a promise to pay money or do some act. The word bond can also be used to describe physical restraints used to hold someone down. The term bondage is another word for slavery.
A system built on a foundation of debt will treat its subjects like property. Our financial lives are subjected to:
- Zero financial privacy
- Restricted access to money
- Micromanagement of all commercial activity
- Taxes on all transactions including barter
- Feudal land tenure for property “owners”
- The state’s ability to confiscate your property
- Imprisonment and forced labour for failure to comply
- An expensive legal system that obfuscates its rules through volumes of constant regulations and legalese
- A consumer culture built on a foundation of third world exploitation and slave labour
Centralization of Economic Power
Centralization of power has a tendency to corrupt. The global economic system consists of multiple layers of centralization that concentrates power amongst an elite banking cartel.
Commercial banks are controlled by semi-private central banks that have a certain degree of autonomy. These central banks are all controlled by the Bank for International Settlements.
Then there’s the World Bank, which lends money to developing nations, creating debt obligations as a means of controlling their natural resources. The International Monetary Fund is a pool of capital used to lend liquidity to nations in emergency situations.
While some of these institutions claim to bring stability and fight poverty, the actual results show an accelerated concentration of power and wealth. The very nature of Ponzi and pyramid schemes consists of concentrating wealth at the top levels. The majority of participants stay at the bottom level and have the least amount of wealth.
Right now, 1% of the world’s population controls around half the wealth. Some would have you think this is the difference between high vs low achievers, yet given the centralized pyramid structure of our economy, it’s actually mathematically impossible for the majority to get an equal share.
If money is created out of debt, the interest makes it so that there’s never enough money in circulation to pay off the principal obligations. It’s a game of musical chairs where the majority of participants will never have enough money pay off their debts. Financial pyramid structures fail because the bottom level always comprises of the majority.
Unlike centralized pyramid structures, decentralization consists of distributing power amongst individuals within a network. Decentralization is a self-selecting meritocracy, where individuals can choose to contribute to the ecosystem based on their abilities.
Usury is a system that always takes more than it gives. The debt based economy is a parasite that will consume all the world’s resources until it kills its host. The best way to kill a parasite is to starve its food source. Rather than trying to fix a sinking ship, you can choose to withdraw your energy and your consent to feed an alternative model. Choice is the first step towards liberation.
Bitcoin and open-source blockchain technology is a potential remedy for individuals to transcend financial slavery. Satoshi Nakamoto created Bitcoin as a global monetary network that can bypass financial institutions, and operate without the permission of trusted fiduciaries.
Cryptocurrencies can help boost financial liberty for several reasons:
- Increased privacy
- Full access and control of your money
- Uncensored transactions
- A store of value
- Units of account not created out of debt
- Transparent monetary policies, regulated by mathematics
- The ability to create and choose a diverse range of economic models
Liberty requires taking personal responsibility for your actions. We are all players in this game who are responsible for the final outcome. The solutions will not come from a top down approach, so do not beg your captors to set you free.
With cryptocurrencies you are 100% responsible for keeping your money secure, while conducting due diligence on all your financial interactions. Freedom can be risky business, yet without risk there can be no rewards.
A proactive approach to our economic problems is to grow these alternative models, so that global systems are in place once the Ponzi debt bubble collapses. They say that necessity is the mother of invention and creating a decentralized economy may be the only chance our civilization has for survival. This may no longer be a question of taste but one of duty.